【Investment risk case 3 - enticing investors with high returns to evade supervision through equity transfer】

I. Overview of the case

A private equity firm in Guangzhou (hereinafter referred to as Company Y) was established in 2011, and was registered as a private equity fund manager with the Fund Industry Association in April 2014. Company Y manages fund products through investment operations in the domestic futures market. The futures market is highly leveraged and volatile. In October 2014, the 4 fund products managed by the company were all liquidated by the product issuer because the net value fell below the liquidation conditions stipulated in the fund contract.

In March 2015, Company Y changed its shareholding, and the actual controller and senior management personnel have undergone great changes. After the above-mentioned major events occurred, Company Y failed to report to the AMAC and update the registration and filing information as required. It coincides with the special inspection of the private equity fund industry by the China Securities Regulatory Commission. During the inspection process, the inspection team was unable to contact the company through the telephone, email and text messages reserved by Company Y in the private equity fund registration and filing system. Through inquiries from other institutions that have a cooperative relationship with the company, the inspection team finally contacted Liu XX and Feng XX, two former executives of Y company. However, the two refused to accept the on-site inspection on the grounds that the company's equity was transferred and the business was stagnant. Although the inspection team conducted an investigation and conversation with the relevant executives and shareholders of Company Y, Company Y did not provide any business information to the inspection team except for the Articles of Association, and did not cooperate with the on-site inspection. In addition, Company Y also promotes on the homepage of the company's website that "annualized income of 30%-50% is no longer a dream", and selectively discloses the rate of return of profitable products in its managed funds. The four loss-making products that were liquidated were not mentioned.

Article 14 of the "Interim Measures for the Supervision and Administration of Private Investment Funds" stipulates that private equity fund managers and private equity fund sales agencies shall not raise funds from units and individuals other than qualified investors, and shall not use public media such as newspapers, radio, television, and the Internet. Or lectures, reports, analysis meetings, announcements, leaflets, mobile phone text messages, WeChat, blogs and e-mails, etc., to promote and promote to unspecified objects. Article 25 of the "Interim Measures for the Supervision and Administration of Private Investment Funds" stipulates that private equity fund managers shall, in accordance with the regulations of the fund industry association, timely fill in and regularly update the relevant information of the managers and their practitioners, and the investment operations of the private equity funds they manage. information and leverage usage, and ensure that the information filled in is true, accurate, complete and timely. If a major event occurs, it shall be reported to the association within 10 working days. Accordingly, the Guangdong Securities Regulatory Bureau took administrative supervision measures of issuing a warning letter to Company Y, and notified its violations to the Private Equity Department of the CSRC, and entered it into the CSRC Integrity File System.

Ⅱ. Case study

The private equity fund manager in this case was registered with the AMAC in April 2014 to the time of equity transfer and senior management change in March 2015, which took less than one year. When all the products were liquidated and the product investors suffered serious losses, the fund manager did not actively deal with the reality that a large number of customers suffered losses, but instead adopted the method of equity transfer and change of senior management personnel to avoid responsibility. After the occurrence of major changes, refuse to perform the obligation to report major events. This case is a typical case of false propaganda and concealment of facts in the field of private equity funds. It has the following characteristics:

1. Lack of integrity management awareness. After the related fund products were liquidated at a loss, the company attempted to “make a facelift” by means of equity transfer, change of senior management, etc., to avoid the adverse impact of the product’s loss-making liquidation on the company’s goodwill. The obligation to report matters is only to use the registration and filing as a means of enhancing their own credit.

2. Low level of internal control. Since the company obtained the private equity fund manager registration qualification in 2014, it has not established relevant rules and regulations such as internal management and risk control. In the process of investment operation, the company completely relied on the personal investment decisions of the former actual controller Liu XX, and lacked internal control mechanisms such as collective decision-making and power checks and balances. Even after the transfer of the company's equity, the new actual controller lacked investment experience and ability. Still take the form of cooperation with Liu XX for investment and operation. Liu XX deliberately evaded supervision in the form of equity transfer, but actually still controls the company's specific investment behavior.

3. Selective promotion of historical performance, false disclosure of product loss risks, and public promotion of high returns through the company's website are quite confusing. The company’s former actual controller, Liu XX, has been engaged in futures market investment earlier and has achieved good results in the futures investment market. However, the company’s website selectively discloses products with better profitability, and publicly promotes high returns of 30%-50% , and some loss-making products are not disclosed, which makes some investors confused by the company's executives' “champion halo”“historically high returns” and other phenomena, It is impossible to soberly and comprehensively understand the high-risk characteristics of private equity fund products.

4. Deliberately avoid, shirk or delay, and do not cooperate with supervision. In order to facilitate the issuance of products, the company took the initiative to apply to the fund industry association for administrator registration. However, after the registration, the relevant contact information of the company was not updated in time; after receiving the notice of the on-site inspection, the relevant executives avoided the on-site inspection request by evading, shirking or delaying, refusing to provide any inspection materials, and the supervision cooperation was extremely low.

III. Relevant Inspirations

Integrity is the foundation of the wealth management industry. As a member of the wealth management industry, private equity funds are highly dependent on integrity. When investors choose private equity funds to invest, they should attach great importance to the integrity of private equity fund managers.

1. It is necessary to prudently check and verify the basic information of private equity fund managers. According to the "Interim Measures for the Supervision and Administration of Private Investment Funds", all private equity fund managers who perform normal registration procedures must publish relevant information on the official website of the AMAC. Investors should enhance their risk awareness. Before choosing to invest in private equity funds, they can fully understand the management ability, risk control level and professionalism of private equity fund managers and senior executives by prudently verifying the public information of private equity fund managers. Generally speaking, private fund managers whose actual situation is inconsistent with the registration and filing information have a relatively low level of integrity management.

2. It is necessary to identify the actual situation of private equity fund managers' publicity, and do not be easily fooled by the so-called “champion halo”, “historically high yield” and other inductive publicity. When investors choose private equity funds, they should pay attention to whether the publicity and promotion of private equity funds contain abnormal situations such as “high return”, “guaranteed return” Vague statements can require the administrator to explain or explain, and do not be fooled or deceived by various exaggerations and false propaganda.